TITLE 27
Insurance
CHAPTER 27-35
Insurance Holding Company Systems
SECTION 27-35-2.5
§ 27-35-2.5 Acquisitions involving
insurers not otherwise covered.
(a) Definitions. The following definitions shall apply for the purposes
of this section only:
(1) "Acquisition" means any agreement, arrangement or
activity the consummation of which results in a person acquiring directly or
indirectly the control of another person, and includes but is not limited to,
the acquisition of voting securities, the acquisition of assets, bulk
reinsurance and mergers.
(2) An "involved insurer" includes an insurer which either
acquires or is acquired, is affiliated with an acquirer or acquired, or is the
result of a merger.
(b) Scope.
(1) Except as exempted in paragraph (2) of this subsection,
this section applies to any acquisition in which there is a change in control
of an insurer authorized to do business in this state.
(2) This section shall not apply to the following:
(a) A purchase of securities solely for investment purposes
so long as the securities are not used by voting or otherwise to cause or
attempt to cause the substantial lessening of competition in any insurance
market in this state. If a purchase of securities results in a presumption of
control under subsection 27-35-1(c), it is not solely for investment purposes
unless the commissioner of the insurer's state of domicile accepts a disclaimer
of control or affirmatively finds that control does not exist and the
disclaimer action or affirmative finding is communicated by the domiciliary
commissioner to the commissioner of this state;
(b) The acquisition of a person by another person when both
persons are neither directly nor through affiliates primarily engaged in the
business of insurance, if pre-acquisition notification is filed with the
commissioner in accordance with subdivision 27-35-2.5(c)(1) thirty (30) days
prior to the proposed effective date of the acquisition. However, such
pre-acquisition notification is not required for exclusion from this section if
the acquisition would otherwise be excluded from this section by any other
subparagraph of subdivision 27-35-2.5(b)(2);
(c) The acquisition of already affiliated persons;
(d) An acquisition if, as an immediate result of the
acquisition,
(i) In no market would the combined market share of the
involved insurers exceed five percent (5%) of the total market,
(ii) There would be no increase in any market share, or
(iii) In no market would
(I) The combined market share of the involved insurers exceed
twelve percent (12%) of the total market, and
(II) The market share increase by more than two percent (2%)
of the total market.
For the purpose of section (2)(d), a market means direct
written insurance premium in this state for a line of business as contained in
the annual statement required to be filed by insurers licensed to do business
in this state;
(e) An acquisition for which a pre-acquisition notification
would be required pursuant to this section due solely to the resulting effect
on the ocean marine insurance line of business;
(f) An acquisition of an insurer whose domiciliary
commissioner affirmatively finds that the insurer is in failing condition;
there is a lack of feasible alternative to improving such condition; the public
benefits of improving the insurer's condition through the acquisition exceed
the public benefits that would arise from not lessening competition; and the
findings are communicated by the domiciliary commissioner to the commissioner
of this state.
(c) Pre-acquisition Notification; Waiting Period. An
acquisition covered by subsection 27-35-2.5(b) may be subject to an order
pursuant to subsection 27-35-2.5(e) unless the acquiring person files a
pre-acquisition notification and the waiting period has expired. The acquired
person may file a pre-acquisition notification. The commissioner shall give
confidential treatment to information submitted under this subsection in the
same manner as provided in § 27-35-6.
(1) The pre-acquisition notification shall be in such form
and contain such information as prescribed by the NAIC relating to those
markets which, under subdivision 27-35-2.5(b)(2)(d), cause the acquisition not
to be exempted from the provisions of this section. The commissioner may
require such additional material and information as deemed necessary to
determine whether the proposed acquisition, if consummated, would violate the
competitive standard of subsection 27-35-2.5(d). The required information may
include an opinion of an economist as to the competitive impact of the
acquisition in this state accompanied by a summary of the education and
experience of such person indicating his or her ability to render an informed
opinion.
(2) The waiting period required shall begin on the date of
receipt of the commissioner of a pre-acquisition notification and shall end on
the earlier of the thirtieth day after the date of receipt, or termination of
the waiting period by the commissioner. Prior to the end of the waiting period,
the commissioner on a one-time basis may require the submission of additional
needed information relevant to the proposed acquisition, in which event the
waiting period shall end on the earlier of the thirtieth day after receipt of
the additional information by the commissioner or termination of the waiting
period by the commissioner.
(d) Competitive Standard.
(1) The commissioner may enter an order under subdivision
27-35-2.5(e)(1) with respect to an acquisition if there is substantial evidence
that the effect of the acquisition may be substantially to lessen competition
in any line of insurance in this state or tend to create a monopoly or if the
insurer fails to file adequate information in compliance with subsection
27-35-2.5(c).
(2) In determining whether a proposed acquisition would
violate the competitive standard of paragraph (1) of this subsection, the
commissioner shall consider the following:
(a) Any acquisition covered under subsection 27-35-2.5(b)
involving two (2) or more insurers competing in the same market is prima facie
evidence of violation of the competitive standards.
(i) If the market is highly concentrated and the involved
insurers possess the following shares of the market:
SEE THE BOOK FOR THE PROPER TABLE.
(ii) Or, if the market is not highly concentrated and the
involved insurers possess the following shares of the market:
SEE THE BOOK FOR THE PROPER TABLE.
A highly concentrated market is one in which the share of the
four (4) largest insurers is seventy-five percent (75%) or more of the market.
Percentages not shown in the tables are interpolated proportionately to the
percentages that are shown. If more than two (2) insurers are involved,
exceeding the total of the two columns in the table is prima facie evidence of
violation of the competitive standard in paragraph (1) of this subsection. For
the purpose of this item, the insurer with the largest share of the market
shall be deemed to be Insurer A.
(b) There is a significant trend toward increased
concentration when the aggregate market share of any grouping of the largest
insurers in the market, from the two (2) largest to the eight (8) largest, has
increased by seven percent (7%) or more of the market over a period of time
extending from any base year five (5) to ten (10) years prior to the
acquisition up to the time of the acquisition. Any acquisition or merger
covered under subsection 27-35-2.5(b) involving two (2) or more insurers
competing in the same market is prima facie evidence of violation of the
competitive standard in paragraph (1) of this subsection if:
(i) There is a significant trend toward increased
concentration in the market;
(ii) One of the insurers involved is one of the insurers in a
grouping of large insurers showing the requisite increase in the market share;
and
(iii) Another involved insurer's market is two percent (2%)
or more.
(c) For the purposes of subdivision 27-35-2.5(d)(2):
(i) The term "insurer" includes any company or group of
companies under common management, ownership or control;
(ii) The term "market" means the relevant product and
geographical markets. In determining the relevant product and geographical
markets, the commissioner shall give due consideration to, among other things,
the definitions or guidelines, if any, promulgated by the NAIC and to
information, if any, submitted by parties to the acquisition. In the absence of
sufficient information to the contrary, the relevant product market is assumed
to be the direct written insurance premium for a line of business, such line
being that used in the annual statement required to be filed by insurers doing
business in this state, and the relevant geographical market is assumed to be
this state;
(iii) The burden of showing prima facie evidence of violation
of the competitive standard rests upon the commissioner.
(d) Even though an acquisition is not prima facie violative
of the competitive standard under paragraphs (2)(a) and (2)(b) of this
subsection, the commissioner may establish the requisite anticompetitive effect
based upon other substantial evidence. Even though an acquisition is prima
facie violative of the competitive standard under sections (2)(a) and (2)(b) of
this subsection, a party may establish the absence of the requisite
anticompetitive effect based upon other substantial evidence. Relevant factors
in making a determination under this subparagraph include, but are not limited
to, the following: market shares, volatility of ranking of market leaders,
number of competitors, concentration, trend of concentration in the industry,
and ease of entry and exit into the market.
(3) An order may not be entered under subdivision
27-35-2.5(e)(1) if:
(a) The acquisition will yield substantial economies of scale
or economies in resource utilization that cannot be feasibly achieved in any
other way, and the public benefits which would arise from such economies exceed
the public benefits which would arise from not lessening competition; or
(b) The acquisition will substantially increase the
availability of insurance, and the public benefits of the increase exceed the
public benefits which would arise from not lessening competition.
(e) Orders and Penalties.
(1)(a) If an acquisition violates the standards of this
section, the commissioner may enter an order:
(i) Requiring an involved insurer to cease and desist from
doing business in this state with respect to the line or lines of insurance
involved in the violation; or
(ii) Denying the application of an acquired or acquiring
insurer for a license to do business in this state.
(b) Such an order shall not be entered unless:
(i) There is a hearing;
(ii) Notice of the hearing is issued prior to the end of the
waiting period and not less than fifteen (15) days prior to the hearing; and
(iii) The hearing is concluded and the order is issued no
later than sixty (60) days after the date of the filing of the pre-acquisition
notification with the commissioner.
Every order shall be accompanied by a written decision of the
commissioner setting forth findings of fact and conclusions of law.
(c) An order pursuant to this paragraph shall not apply if
the acquisition is not consummated.
(2) Any person who violates a cease and desist order of the
commissioner under paragraph (1) and while the order is in effect may, after
notice and hearing and upon order of the commissioner, be subject to one or
more of the penalties set forth in § 42-14-16:
(3) Any insurer or other person who fails to make any filing
required by this section, and who also fails to demonstrate a good faith effort
to comply with any filing requirement, shall be subject to one or more
penalties set forth in § 42-14-16.
(f) Inapplicable Provisions. Subsections 27-35-8(b),
27-35-8(c), and 27-35-10 do not apply to acquisitions covered under subsection
27-35-2.5(b).
History of Section.
(P.L. 2010, ch. 55, § 2; P.L. 2010, ch. 70, § 2; P.L. 2011, ch. 15,
§ 2; P.L. 2011, ch. 26, § 2.)
